For several years, consumer advocates and payday-loan lobbyists have fought to a draw at the legislature. The special interests have been thwarted from adding any more “helpful” products to a system that now allows short-term loans at interest rates equivalent to 391% annually. And a bill that would effectively eliminate payday loans by setting annual interest ceilings of 36% has failed to get traction.
A coalition of religious, social-service and veterans groups is gearing up to fight efforts to expand high-interest loans. But there is also hope that this may be the year legislators agree to rein in existing predatory loans.
Introduced by Sen. Greg Walker, R-Columbus, Senate Bill 26 would limit the amount creditors could charge for short-term loans to the equivalent of 36% annually. Such a limit was imposed by the U.S. Department of Defense to protect service members from being exploited. Rate caps are also the law in 16 states and the District of Columbia.
Lobbyists have somehow convinced many Republican legislators that high-interest loans are essential tools for low-income people dealing with sudden expenses. Those Hoosiers, they say, could be left without alternatives if they have costly car repairs or unexpected medical expenses.
But unaware of the hazards, or too desperate to care, people in such circumstances often find that, rather than helping them stay ahead of expenses, payday loans themselves become the problem, trapping borrowers in a cycle of debt. Companies that specialize in such loans can make more money from a borrower who's forced to refinance a short-term debt than they can from someone able to pay debts back on time.
“The typical payday loan borrower has a median income of just over $19,000 per year and reborrows eight to ten times, paying more in fees than the amount originally borrowed,” according to a 2018 report by the Indiana Institute for Working Families.
And it's not as though lawmakers are rallying behind some venerated, home-grown industry. The 262 payday-loan sites operating in the state in 2018, many of them located in low-income neighborhoods, were predominantly owned by out-of-state companies.
“Payday lenders have drained over $300 million in finance charges from Hoosier families and communities in the past five years,” the Working Families report said.
The problems that payday-loan apologists warn against haven't materialized in places where predatory interest rates have been eliminated. In South Dakota, for instance, voters in 2016 overwhelmingly voted to approve a referendum setting a 36% cap on short-interest loans. More than three years later, according to a report released Monday by the Center for Responsible Lending, low-income consumers have found other sources of loans available to them, payday sites have been repurposed as businesses that contribute to the state's economy, and a poll shows voters remain firmly committed to the new law.
“It looks like folks in South Dakota don't want payday lending back,” said Erin Macey, policy analyst for the Working Families Institute.
Legislators will be considering at least two bills that would expand sky-high-interest loans. Senate Bill 329, sponsored by Sen. Andy Zay, R-Huntington, would allow six-to-24-month loans at the equivalent of an annual charge of 99% interest, possibly plus fees and insurance charges, Macey said.
At the least, lawmakers should refrain from passing such bills and making the problem worse. Even better, they should give serious consideration to Walker's SB 26.
What do you think of the payday loan industry? Do low-income Hoosiers need its services to meet emergency expenses, or does it contribute to their financial struggles? Should loan rates be capped? At what rate?
Share your thoughts by email: firstname.lastname@example.org; or by mail: Letters to the editor, The Journal Gazette, 600 W. Main St., Fort Wayne, IN, 46802.